FDI Policy And its Impact

on INDIA

What is FDI?

Difference between FDI and FII

1. Purpose of investment

2. Term of investment

3. Managerial control

4. Entry and exit

5. Involvements

Types of FDI1. By Directions• Inward FDI• Outward FDI2. By Target• Merger & Acquisition• Horizontal FDI• Vertical FDI

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

4,029

6,130

5,035

4,332

6,051

8,961

22,826

34,843

41,873

37,745

34,847

46,556

36,860

FDI Inflows 2000-2013 (US $)

FDI Inflows 2000-2013

MAURITIUS

SINGAPORE

U.K.Jap

anU.S.

A.

Netherlands

Others0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS (US $)

Cumilative Inflows 2000-2013

Servi

ce

Construcio

n Development

Telecommunica

tions

Computer Software

& Hardware

Drugs & Pharm

aceutical

s

Chemicals

AutomobileOthers

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000Cumulative Inflows of FDI sector wise 2000-2013 (US $)

Cumilative Inflows 2000-2013

Policies 51% FDI in Multi Brand Retail Sector

Conditions to be fulfilled:- Minimum Amount of Investment-$10 million Atleast 50% of the amount to be invested in Backward Infrastruture Atleast 30% of the value towards Small Industries(India) Government’s first right-Agricultural products Retail outlets set up State government and union territories• Agreed to implement-Andhra Pradesh, Assam, Delhi, Haryana, Jammu and

Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakand, Daman and Diu and Nagar Haveli

E-commerce not permissible

49% FDI in Civil Aviation Sector with Government approval

For friendly relations with Pakistan ,allows Pakistan Nationals and Companies to invest in the country with government approval

Single Brand RetailingNon resident EntityProcurement Requirement

Asset Reconstruction Companies the limit increased to 74% from 49% with government approval

49% (FDI& FII) in power exchanges registered under Central Electricity Regulatory Commission with government approval

In broadcasting sector FDI cap is raised to 74%from 49% in direct and home services and cable networks at national or state or district level

NBFC’s with foreign capital more than 75% and upto 100% and minimum capitalisation of US $50 million can set up subsidiaries for specific NBFC activities

NRI making investment in Indian company-Investments to be made on face value of the shares subject to eligibility criteria

Foreign Direct Investment Procedure

TO SET UP A BUSINESS IN INDIA, THE FOREIGN COMPANY HAS THE FOLLOWING OPTIONS:•AUTOMATIC ROUTE • GOVERNMENT ROUTE

Advantages and Disadvantages of FDI in INDIA

ADVANTAGES• Raising the Level of Investment• Upgradation of Technology• Benefits to Consumers•  Good Quality Product• Revenue to Government

DISADVANTAGES• Increase Inflation• Create Unemployment•  Upset the Balance of Payment• Retailer faces loss in business

Fdi Is Restricted In Both Routes For The Following Sectors

1.Retail Trading (except single brand product retailing)2. Atomic Energy3.Lottery Business4.Gambling and Betting5.Business of Chit Fund6.Agricultural (excluding some notified activities and allied sectors)

and Plantations activities (other than Tea Plantations).7.Housing and Real Estate business (except development of

townships, construction of residential/commercial premises, roads or bridges to the extent specified in the relevant notification).

8.Trading in Transferable Development Rights (TDRs)9.Manufacture of cigars, cheroots, cigarillos and cigarettes, of

tobacco or of tobacco substitutes.

Telecom Telecom industry is regulated by Telecom Regulatory Authority of India(TRAI)Growth drivers:

(1) Subsciber baseExpected to increase by 9%

(2)Mobile value added serviceIt includes games,music etc and estimated to grow to us$ 10.8 billion

(3)Handsets

total subscibers urban rural0

100

200

300

400

500

600

700

800

900

1000

897.02

544.549999999999

352.47

Total subscribers as per april-13

Total subscribers as per april-13

Key players

FDI Policy• Attracted FDI worth US $12889mn between

april’00-sept’13.

• Govt allowed FDI from 74% to 100% where 49% will be done through automatic route and remaining through foreign investment promotion board(FIPB)

Impact of FDI policy• Foreign investor need no partnership

with Indian companies.

• Lower the financial burden

• Enchanced the value for all stake holders

•More than US$ 500 billion.

•One of the top 5 Retail Markets in the world.

•Catchment of over 1.2 billion people.

•Contributes - 14% to 15% to GDP.

Indian Retail Market

60%

11%

8%

6%

5%

4%3% 3%

Indian Retail

Food and Grocery

Others

Consumer Electronics

Mobile and Telecom

Food Service

Jewellery

Consumer Electronics

Pharmacy

Division of Retail Industry

Retail

Organised Retailing

Eg: Corporate backed hypermarkets and retail chains, super markets.

Unorganised Retailing

Eg: Local Kirana Shops, mom& pop stores, paan/beedi shops,

convience stores, etc

FDI in Retaila) FDI up to 100% for cash and carry

wholesale trading and export trading allowed under the automatic route.

b) FDI up to 49% with prior Government approval (i.e. FIPB) for retail trade of ―Single Brand.

Growth in Retail

2007-08 2008-09 2009-10 2010-11 2011-120

100

200

300

400

500

600

Retail Growth (USD Billion)

Retail Growth (USD Billion)

FDI in Retaila) FDI up to 100% for cash and carry wholesale

trading and export trading allowed under the automatic route in 2006.

b) FDI up to 100 % with prior Government approval (i.e. FIPB) for retail trade of ―Single Brand.

c) 51% FDI is permitted in Multi Brand Retailing in India under Government Route

Impact of FDIBenefits of FDI• Continuous inflow of funds.• Generating more and improved quality of

employment.• Increased local sourcing• Provide better value to end consumers.• Improved supply chain and ware housing.• Franchising opportunities for local entrepreneurs• Growth in infrastructure.• Implementation of IT in Retail.• Stimulate the other supporting industries.

Drawbacks of FDI

• Would give rise to cut throat competition rather than increase incremental business.

• Promoting cartels and increasing monopolies.

• Increase in real estate prices.

• Marginalize domestic entrepreneurs.

• Financial Strength of the foreign players would affect the unorganized players.

Key Investments• Reliance Retail plans to enter the e-commerce segment in 6 to

8 months.

• Swedish furniture retailer IKEA had proposed setting up 10 furnishing and homeware stores as well as allied infrastructure in India,.

• Myntra has entered into an exclusive partnership with UK-based apparel manufacturer

.• Shoemaker Johnston & Murphy plans to open 15 stores across

Indian metros.

• Tesco Plc, the UK’s largest supermarket company, plans to be the first foreign multi-brand chain to enter the Indian market

Pharmaceuticals

• The Indian Pharmaceutical Market Will Be The Sixth Largest In The World By 2020

• Its Steady Growth Is Positively Affecting The Indian Economy.

Key players

Ranbaxy Labs.15%

Cipla15%

Dr Reddy's Labs12%

Aurobindo Pharma9%

Piramal Health7%

Sun Pharma.Inds.7%

Wockhardt5%

Cadila Health.5%

Ipca Labs.4%

Torrent Pharma.4%

Glenmark Pharma.3%

Alembic3%

Unichem Labs.2%

J B Chem & Pharm2%

FDC2%

Others5%

Market Share

FDI policy in pharmaceuticals

• This sector has attracted FDI worth US$ 11,391.03 mn in the period April‘00–Sept ‘13

• Govt. Has allowed 100% FDI through automatic route for new projects but existing projects needs approval from FIPB

• The Government has made a weighted tax deduction of 150 per cent for any R&D expenditure incurred.

Key investment• GlaxoSmithKline Plc plans to invest Rs 864

crore to set up a new factory in India.

• Cipla has acquired a majority stake in Uganda-based Quality Chemical Industries Ltd (QCIL), with the acquisition of an additional 14.5 per cent stake for US$ 15 million through its subsidiary, Meditab Holdings Ltd (MHL).

Impact of FDI policy• Poses direct threat to the entire health in terms

of access and affordability of medicines.

• MNCs affected export of indian genetic drugs

• It also helped to expand its foreign relations with respect to the pharma and biotech industries. 

IT & ITe’s• Transformed India’s image on the global platform.

• Fuelled economic growth by energizing higher education sector.

• Employee's almost 10 million Indians.

• Share in the global market - 7 %.

• Exports by 12-14 % in FY14.

.

2007-08 2008-09 2009-2010

2010-11 2011-12 2012-130

20

40

60

80

100

120

62.969.4

73.9

88.1 90.9

100

India's IT Sector Growth (USD Billion)

India's IT Sector Growth (USD Billion)

FDI Inflows in the Sector

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

0

1000

2000

3000

4000

5000

6000

7000

8000

5623

67287329

4350

3804 4230

IT

IT

Impact of FDI• Department of Industrial Policy and Promotion

(DIPP) - Rs 54,347.88 crore (US$ 8.77 billion).

• 100% FDI is permitted under the automatic route.

• Lead to increase in employeement.

• Higher GDP.

IT/ITes Industry Size (Rs. Crore)

2007-08 2008 - 09 2009 -10 2010 - 11 2011-120

100000

200000

300000

400000

500000

600000

Domestic IT/ITes

IT/ITesExport Revenue

IT/ITes Industry Size

Key Investments• Hitachi has acquired a foothold in India's

payment space with the acquisition of Prizm Payment Services.

• Dell has opened its India design centre for its storage technologies and has realigned its domestic research and development (R&D) unit.

Automobile• India to be among the world's top five auto-

producers by 2015.• By 2020, the overall passenger vehicle market

is expected to grow to 9 million units from 3.2 million units at present.

• By 2020, India is also forecast to become the world's third-largest auto market.

• The automobile industry in India is growing by 18 percent per year.

Key players

FDI policy• The Government of India allows 100 per cent FDI through automatic

route

• The cumulative FDI inflow into the Indian automobile industry during April 2000 to July 2013 was recorded at US$ 8,932 mn.

• Govt. has laid down minimum excise duty

• The automobile industry in India does not belong to the licensed agreement

• Import of components is allowed without any restrictions and also encouraged

Key investment• Hero MotoCorp plans to establish 20 manufacturing

and assembly facilities to expand its presence across 50 countries by 2020

• Nissan Motor India, has entered into an agreement with Ennore Port Ltd (EPL), to export at least 60,000 cars a years for the next 10 years

• Mahindra & Mahindra plans capital expenditure and investments worth Rs 10,000 cr over the next two years

Impact of FDI policy• Direct employment in manufacturing, auto

component suppliers and auto service segments

• Helped india in providing advanced technology, cost-effectiveness, and efficient manpower

Conclusion• Major boost to the country's economy.

• Better access to technologies for the local economy.

• Lead to indirect productivity gains.

• Increased the degree of competition in host-country.

• Potential to overtake China